Gadgets Now Bureau Mar 13, 2023 9:10 AM IST
The US has experienced its second largest banking collapse in history. Silicon Valley Bank (SVB), Santa Clara, California, was shut down by the California Department of Financial Protection and Innovation. According to the Federal Reserve, it was the 16th largest bank by assets at the end of 2022 with $209 billion in assets and over $175 billion in deposits. Silicon Valley Bank had 17 branches in California and Massachusetts. Find out why SVB failure is bad news for tech startups, why Indian tech startups are struggling and other key questions answered.
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Why the Silicon Valley Bank is hurting tech startups the most
Silicon Valley Bank (SVB) was one of the largest banks supporting small businesses in the tech world. SVB is geared towards supporting businesses, with over half of its loans being made to venture funds and private equity firms and 9% to early and growth stage companies. Customers who turn to the SVB for loans also tend to keep their deposits with the bank. In recent years, SVB has reportedly been one of the preferred banking options for startups and the tech industry in Silicon Valley, largely due to their industry understanding and flexibility in many aspects that fit the startup ecosystem. Also, a large number of Indian startups that don’t even have an employee or office in the US had opened their accounts with Silicon Valley Bank as they could do it without major regulatory issues and with a customer-friendly approach.
The biggest “sacrifice”
Companies linked to US-based tech startup accelerator Y Combinator, which has invested in thousands of startups, including at least 200 from India, are among those feeling the heat of the Silicon Valley bank collapse become. Reports suggest that in the Y Combinator community, a third of startups with exposure to SVB used SVB as their only bank account.
VCs on the problem list
According to a report in TechCrunch, dozens of young Indian startups backed by companies including YC, Accel, Sequoia India, Lightspeed, SoftBank and Bessemer Venture Partners have banked with Silicon Valley Bank, sometimes as their sole banking partner, and have failed to close the money on Thursday (March 11) when the router started up. VCs are wary of disclosing the names of the startups involved, as doing so could hurt the young companies’ prospects of raising capital in the future.
1 lakh jobs at risk
Y Combinator has written a petition to US Treasury Secretary Janet Yellen and others, urging them to prevent further shockwaves that could lead to a financial crisis and layoffs of more than 100,000 workers. According to the National Venture Capital Association (NVCA), Silicon Valley Bank has over 37,000 small businesses with more than $250,000 in deposits. “As a result, they will not have the money to run payroll for the next 30 days. As a result of this action, we can estimate that more than 10,000 small businesses and startups will be affected by payroll furlough or closures,” said Garry Tan, CEO and President of Y Combinator.
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Indian SaaS startups are likely to be hit the hardest
While the exact number of Indian startups with SVB accounts is unknown, it is estimated that more than 50 percent of India’s software-as-a-service (SaaS) companies have a US presence, with the majority banking at SVB. Some SaaS companies are registered in the US because, although operating from India, they serve the international markets and want to be perceived as a US company. Silicon Valley Bank has also been a popular banking choice for many companies moving their home base from India to the US. Nearly all Indian SaaS startups with a large presence in the US are banked with TechCrunch at Silicon Valley Bank, a partner at one of the top venture funds.
1,000 startups directly affected
Over 1,000 startups are reported to have been directly affected by the SVB collapse, and there are many more likely to be indirectly affected. The companies affected range from the early to late growth phase. Tan said more than 1,000 YC-backed startups have been impacted by the failure of Silicon Valley Bank. “I spoke to some founders and it’s very bad. Especially for Indian founders (mainly SaaS or YC supported) who have established their US companies and raised their first round, SVB is the default bank. The insecurity is killing her. Growth companies are relatively safer because they diversify. Last thing founders need,” tweeted Ashish Dave, CEO of Mirae Asset.
Nazara Technologies step-down subsidiaries hold Rs 64 cr at SVB
Nazara Technologies, a diversified gaming and sports media platform, has said two of its step-down subsidiaries hold cash balances of around Rs 64 crore with Silicon Valley Bank. However, in a regulatory filing, Nazara Technologies said both of its subsidiaries — Kiddopia Inc and Mediawrkz — remain well capitalized and generating positive cash flows in addition to profitability.
IT minister meets with startups to discuss the crisis
Electronics and IT Minister of State Rajeev Chandrasekhar will meet with startup representatives this week to assess the impact of their involvement with Silicon Valley Bank, which has been heavily involved in the tech startup ecosystem.
